Summary

The client asked Fathom to report on the broader macroeconomic implications of the latest EU and UK climate policies, green initiatives and related stimulus programmes. They were interested in how these changes might impact on some of their investments, especially those in the energy sector, and the potential risks and opportunities that these might create more generally. The project was undertaken within the ten consultancy days included in the client’s Global Outlook subscription.

Key facts

The client
The European finance arm of a multinational corporation

The brief
Assess the impact of EU and UK climate policies, identifying risks and opportunities

The timescale
This project was undertaken within ten consultancy days

The focus area
Climate

Our approach

Fathom applies the same rigorous, proven process to every piece of work; this process is the DNA that makes up our world-leading research.

EU and UK climate policy is extremely broad. Fathom’s challenge was to identify the most salient parts and relate these to the client’s interests.

First, we took the wide perspective, comparing the UK and EU’s stance with what was happening elsewhere and finding that in a global context Europe was taking the lead on many issues, such as a potential carbon border tax. We looked closely at the EU’s Green Deal and its related impact assessments, and the climate-related elements of COVID-19 stimulus programmes.

We analysed numerous data for the UK and all EU member states and created an original dataset measuring the extent to which individual EU countries would ‘feel’ it if they meet the bloc’s updated emission-reduction pledges. (We did this by comparing the change in greenhouse gas emissions per capita in recent decades to the changes in the same that would be required to meet the bloc’s goals.)

Impact of EU climate policy - emissions per capita wedge

This chart shows the trajectory of emissions and GDP per capita over the last 30 years (blue triangle) and required trajectory to achieve net zero by 2050 (green triangle)

Impact of EU climate policy - emissions per capita wedge

This chart  overlays the two triangles from the previous chart – it highlights the difference between what has happened and what is needed

We used the data to assess the risks to the bloc’s policies becoming reality and identified some countries that may offer resistance. We assessed the broader implications if those risks materialised, as well as the risks and opportunities if the EU’s new objectives are realised.

At Fathom we do not operate in silos and as part of this project and to reach the conclusions, our climate team worked with economists and our financial market strategists to deliberate the issues and make investment recommendations.

Delivery

We delivered our findings to the client as a presentation, complete with charts and analysis. The data generated during this project were also provided to the client.

Our key findings

  • A carbon border tax seems likely to become EU policy in future, with big implications for importers and exporters
  • Political hurdles to full EU implementation are likely to come from Poland and Hungary, partly because they would ‘feel’ it more than most others, a point supported by the data we generated
  • The UK and EU’s leadership role in climate policy creates both opportunities and risks
  • Hydrogen is a key part of post-COVID recovery plans, especially in Germany
  • Long-run buys: renewable energy, electric cars, components used in their manufacture, relatively clean oil majors and those embracing change, climate solutions in emerging markets such as South Africa and India; investment opportunities in Morocco
  • Long-run sells: oil, coal and the equities and bonds of ‘dirty’ exporters to the EU (in particular those from Algeria, Russia, Ukraine and Kazakhstan)
Impact of EU climate policy - exports and CO2 emissions

This chart shows the emissions intensity of economic activity and export dependence on the EU for the biggest exporters to the EU

Impact

Thanks to Fathom’s work, the client gained a deeper awareness of the key climate-related policy changes afoot in the EU and UK, as well as a better understanding of the possible obstacles to these being realised and the possible economic and investment implications of these changes. They were able to relate this information to their specific investments. The client was impressed with our work: the detail, our analysis, the original data and how we tied the many issues together to inform a view on the broader macroeconomic outlook and related it to some of their specific investments. They asked us to present our findings to their Energy Transition task force, who also received the work positively.

Further reading

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